Third-Party Solar Financing
Third-party financing allows more Americans to “go solar” by lowering the cost of solar installation and maintenance of a system. Companies continue to develop new products and services to meet growing demand for solar. SEIA is committed to supporting policies that enable this innovation to continue and lower costs for consumers.
- Third-party financing is an established financing solution in the United States, and it has emerged in the solar industry as one of the most popular methods of solar financing for consumers to realize the benefits of solar energy.
- Third-party financing of solar energy primarily occurs through two models: 1) lease; and 2) Power Purchase Agreement (PPA). Under a lease, the solar provider installs and owns the system and the customer makes monthly payments to the solar provider. For PPAs, the customer pays an agreed-upon rate for the electricity generated by the system.
- Third-party financing for residential systems has been declining over the last several years. In 2013, 72% of residential systems installed in California were third-party owned, compared with 32% in 2017.
- For commercial applications, third-party financing is on the rise in many states. In Colorado, 95% of non-residential systems installed in Q4 2017 were third-party owned. Nationwide, in 2017 57% of all installed non-residential capacity was third-party owned, topping the previous high of 43% set in 2016.
Solar Power Purchase Agreements and Leasing Models
Third-party financing of solar energy primarily occurs through two models: power purchase agreements (PPAs) and solar leases.
In both models, a solar company installs a solar system on the customer’s property, often with no upfront costs, and is responsible for system upkeep. Under a PPA, the customer pays for the electricity generated by the solar system at an agreed-upon rate. With a lease, a customer leases the solar system and benefits from the electricity the system produces. At the end of a PPA or lease term, the customer may be able to extend the term or purchase the system.
Market Adoption and Policy
Although an established method of financing in the broader economy, third-party financing in the solar industry is less than a decade old, but it quickly became one of the most popular methods for consumers to realize the benefits of solar energy. However, the PPA model faces regulatory and legislative challenges in some states where third-party ownership products are either disallowed or the law is ambiguous. In these states, some third-party developers are still able to offer solar leases.
Third-Party Financing Links
- Solar PV Project Financing, National Renewable Energy Laboratory (NREL) - this report from NREL on third-party financing PPA models identifies the challenges and alternatives to such a model
- States and PPA Financing, NREL - this article details how states can attract third-party PPA financing
- Model Leases and PPA agreements: SEIA hosts model lease and PPA agreements for both residential and commercial & industrial installations.
- For more information about leases and PPAs, check out SEIA's Residential Consumer Guide to Solar Power
- SolarReviews - pros and cons of buying vs. leasing solar vs. PPA agreements